THE ACIT 19(3), MUMBAI V. SHRI VAISHNAV S. PURI (JUF), MUMBAI

ITA 4382/MUM/2007

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8939 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 05-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 07-06-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Assessee Lawyers: K SHIVARAM
• Keywords: Business income; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI P M JAGTAP, ACCOUNTANT MEMBER I T A NO: 7046/MUM/2006, 4382/MUM/2007 AND 4747/MUM /2008 (ASSESSMENT YEAR: 2003-04, 2004-05 AND 2005-06) DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX APPEL LANT 19(3), MUMBAI VS VAISHNAV S PURI (HUF), MUMBAI RESPONDENT PROP: M/S KAKS INTERNATIONAL (PAN: AAACHP9479P) APPELLANT BY: MS ASHIMA GUPTA RESPONDENT BY: MR K SHIVARAM & MR PARAS SAVLA O R D E R R V EASWAR, PRESIDENT: THESE ARE THREE APPEALS BY THE REVENUE RELATING TO THE ASSESSMENT YEARS 2003-04 TO 2005-06. THE ASSESSEE IS A HUF CARRYING ON BUSINESS IN THE NAME AND STYLE OF M/S K AKS INTERNATIONAL. SINCE THERE ARE SOME COMMON GROUNDS , THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY A SINGLE ORDER. 2. THE FIRST GROUND, WHICH IS COMMON TO ALL THE THR EE YEARS IS THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OF FICER TO TREAT THE INCOME FROM THE PROPERTIES ALLEGEDLY USED FOR RUNNI NG A BUSINESS CENTRE AS PROFITS AND GAINS OF BUSINESS, AS CLAIM ED BY THE ASSESSEE, INSTEAD OF TREATING THE SAME IS INCOME F ROM HOUSE PROPERTY AS WAS DONE BY THE ASSESSING OFFICER. TH E BRIEF FACTS IN THIS CONNECTION MAY BE NOTICED. THE ASSESSEE TOOK ON RENT FOUR PROPERTIES CONSISTING OF THREE IN MUMBAI AND ONE IN PARK STREET, ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 2 KOLKATA. IT ALSO OWNED THREE PROPERTIES, ONE IN JO LLY MAKER CHAMBER, NARIMAN POINT, MUMBAI; THE OTHER IN MOVIE TOWER OFFICE, OSHIVARA, ANDHERI, MUMBAI; AND THE THIRD IN NCL (8 TH FLOOR), BANDRA KURLA COMPLEX, MUMBAI. ALL THE PROPERTIES BOTH T HE OWNED PROPERTIES AS WELL AS THE PROPERTIES TAKEN ON RENT WERE LET OUT TO DIFFERENT CONCERNS IN CONSIDERATION OF SERVICE CHAR GES WHICH AMOUNTED TO ` 1,30,44,564/- FOR THE YEAR ENDED 31.03.2003. ACCORDING TO THE ASSESSEE, THE PROPERTIES WERE NOT SIMPLY LET OUT BUT THEY WERE CONVERTED INTO BUSINESS CENTRES AND W ERE LET OUT TO THE CONCERNS WHO USED THEM AND PAID SERVICE CHARGES . IN ACCORDANCE WITH THIS STAND, THE ASSESSEE DECLARED T HE ENTIRE SERVICE CHARGES AS BUSINESS INCOME. THE ASSESSIN G OFFICER, HOWEVER, TOOK THE VIEW THAT SO FAR AS THE THREE OWN ED PROPERTIES ARE CONCERNED, THE SERVICE CHARGES CANNOT BE ASSESS ED AS PROFITS AND GAINS OF BUSINESS BUT SHOULD BE ASSESSED UNDER THE HEAD HOUSE PROPERTY. HE EXAMINED THE BUSINESS SERVICE AGREEMENT AND HELD THAT THE PREMISES WERE LET OUT ON MONTHLY RENT BASIS ALONG WITH THE FURNITURE & FIXTURES, LIGHTS, AIR-CONDITIO NERS, ETC. AND FOR THESE SERVICES THE ASSESSEE DID NOT CHARGE SEPARATE LY. ACCORDING TO HIM, THE MAIN OBJECT OF THE LETTING OUT IS TO AL LOW THE OCCUPANT TO ENJOY THE PROPERTY TOGETHER WITH THE FURNITURE & FI XTURES AND THE INTENTION OF THE PARTIES WAS THAT THE LETTING WOULD BE INSEPARABLE. ACCORDING TO THE ASSESSING OFFICER, IT WAS A CASE O F PURE LETTING OUT THE PROPERTY ALONG WITH THE FURNITURE & FIXTURES, F OR WHICH A CONSOLIDATED MONTHLY RENT WAS BEING PAID. IN THIS VIEW OF THE MATTER ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 3 HE HELD THAT THE SERVICE CHARGES RECEIVED IN RESPEC T OF THE THREE OWNED PROPERTIES SHOULD BE ASSESSED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 3. AS REGARDS THE FOUR PROPERTIES TAKEN ON RENT AND LET OUT ALLEGEDLY AS BUSINESS CENTRES, THE ASSESSING OFFICE R HELD THAT THE SERVICE CHARGES IN RESPECT OF THESE PROPERTIES SHOU LD BE TAKEN AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS IN COME. 4. THE ASSESSING OFFICER THEREAFTER PROCEEDED TO CO MPUTE THE INCOME FROM THE OWNED PROPERTIES UNDER THE HEAD PR OPERTY. SO FAR AS THE NCL PROPERTY IS CONCERNED, HE NOTICED TH AT THE ASSESSEE HAS TAKEN ADVANCE RENT OF ` 1,62,05,909/-. IN RESPECT OF THE JOLLY MAKER PROPERTY, THE ASSESSEE HAD TAKEN ADVANCE RENT OF ` 77,55,000/-. THE ASSESSING OFFICER HELD THAT 10% O F THE SECURITY DEPOSITS IN BOTH THE CASES SHOULD BE TAKEN AS NOTIO NAL RENT AND ADDED TO THE ACTUAL RENT RECEIVED BY THE ASSESSEE. ACCORDINGLY HE ADDED ` 16,20,590/- IN RESPECT OF THE NCL PROPERTY AND ` 7,75,500/- IN RESPECT OF THE JOLLY MAKER PROPERTY AND COMPUTED THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 5. ON APPEAL, THE CIT(A) HELD THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS OF RUNNING BUSINESS CENTRES AND, TH EREFORE, THE INCOME BY WAY OF SERVICE CHARGES SHOULD BE ASSESSED AS BUSINESS INCOME. AS REGARDS THE INCLUSION OF THE NOTIONAL INTEREST IN COMPUTING THE INCOME FROM PROPERTY, HE HELD THAT THE INCLUSION HAS NO BASIS AND DELETED THE SAME. ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 4 6. IT IS AGAINST THE AFORESAID VIEW TAKEN BY THE CI T(A) THAT THE REVENUE HAS FILED THE PRESENT APPEALS. THE FIRST Q UESTION THAT ARISES IN THE APPEAL FOR THE ASSESSMENT YEAR 2003-04 IS WH ETHER THE SERVICE CHARGES FROM OWNED PROPERTIES CAN BE ASSESS ED AS BUSINESS INCOME, AS CLAIMED BY THE ASSESSEE, WHIC H CLAIM HAS BEEN UPHELD BY THE CIT(A). WE HAVE CONSIDERED THE SPECIMEN BUSINESS SERVICE AGREEMENT, A COPY OF WHICH IS AT P AGE 15 OF THE PAPER BOOK. THIS RELATES TO THE NCL (8 TH FLOOR) PROPERTY. IT MEASURES ABOUT 6000 SQUARE FEET, OUT OF WHICH 150 S QUARE FEET WAS RETAINED BY THE ASSESSEE FOR ADMINISTRATIVE PUR POSES. THE BALANCE AREA WAS LET OUT TO M/S SEAWORLD SHIPPING A ND LOGISTICS PRIVATE LIMITED (HEREINAFTER REFERRED TO AS SEAWOR LD). THE ASSESSEE WAS TO FURNISH / AIR-CONDITION THE PREMISE S IN TERMS OF THE REQUIREMENTS OF SEAWORLD. IT WAS PROVIDED THAT ALL THE FURNITURE, AIR- CONDITIONING PLANT AND OTHER INFRASTRUCTURAL FACILI TIES PROVIDED BY THE ASSESSEE SHALL ALWAYS REMAIN THE ASSESSEES PROPERT Y. THE ASSESSEE WAS REQUIRED TO SPEND ` 1.25 CRORES FOR FURNISHING / AIR- CONDITIONING THE OFFICE IN TERMS OF THE REQUIREMENT S OF SEAWORLD, ON THE SPECIFIC UNDERSTANDING THAT IN THE EVENT OF THE ARRANGEMENT BEING TERMINATED WITHIN THREE YEARS, SEAWORLD WOULD PAY 50% OF THE AMOUNT TO THE ASSESSEE. IF THE AGREEMENT IS TE RMINATED BETWEEN THREE AND FOUR YEARS, 25% WILL BE RECOVERED BY THE ASSESSEE. SEAWORLD WAS PERMITTED TO HAVE ACCESS TO THE CENTRE AND OCCUPY AND USE THE FURNITURE AND INFRASTRUCTURA L FACILITIES FOR ITSELF AND ITS BONA FIDE EMPLOYEES, SERVANTS, AGENT S, VISITORS, ETC. ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 5 SEAWORLD WAS PERMITTED ALSO TO USE THE FURNITURE, A IR-CONDITIONING, ETC. THE ARRANGEMENT WAS TO CONTINUE INITIALLY FOR A PERIOD OF THREE YEARS AND THERE WAS A STIPULATION FOR RENEWAL FOR A NOTHER TERM OF THREE YEARS. IT WAS PROVIDED THAT THE BUSINESS CEN TRE FACILITIES WILL BE AVAILABLE TO SEAWORLD FROM 8.00 AM TO 8.00 PM ON ALL WEEK DAYS AND SHALL REMAIN CLOSED ON SUNDAYS AND PUBLIC HOLID AYS EXCEPT THAT THEY CAN BE USED ON THESE DAYS ALSO AFTER PRIO R INTIMATION. THE KEYS OF THE BUSINESS CENTRE WOULD REMAIN WITH THE A SSESSEE AND IT WAS PROVIDED THAT THE PHYSICAL POSSESSION OF THE PR EMISES SHALL ALWAYS BE WITH THE ASSESSEE AND THAT NO TENANCY OR LICENCE OR ANY OTHER PROTECTED RIGHT WAS CREATED IN FAVOUR OF SEAW ORLD. THE AGREEMENT FURTHER STIPULATED THAT IN CONSIDERATION OF THE FURNITURE / EQUIPMENT / AIR-CONDITIONERS, SEAWORLD SHALL PAY TO THE ASSESSEE A LUMPSUM AMOUNT OF ` 52,65,000/- AS SERVICE CHARGES IN ADVANCE EVERY SIX MONTHS, DURING THE FIRST TERM OF THREE YE ARS AND ` 58,00,000/-, EVERY SIX MONTHS, DURING THE SECOND TE RM OF THREE YEARS. SEAWORLD WAS ALSO TO PAY INTEREST FREE DEPO SIT OF ` 1,05,30,000/- FOR A PERIOD OF EIGHTEEN MONTHS AND ` 1,50,00,000/- FOR THE BALANCE PERIOD OF THE AGREEMENT AND TO KEEP SUCH AMOUNT AS MINIMUM DEPOSIT WITH THE ASSESSEE. SEAWORLD WAS ALSO TO REIMBURSE THE ASSESSEE FOR TELEPHONE AND ELECTRICIT Y CHARGES IN RESPECT OF THE USE OF TELEPHONE AND ELECTRICITY BY IT. 7. ON THESE FACTS THE QUESTION IS WHETHER THE SERVI CE CHARGES CAN BE ASSESSED AS BUSINESS INCOME IN THE ASSESSE ES HANDS. WE ARE UNABLE TO UPHOLD THE ASSESSEES PLEA THAT IT SHOULD BE SO ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 6 ASSESSED. IT IS WELL SETTLED THAT HOUSE-KEEPING, H OWEVER PROFITABLE IT MAY BE, CAN NEVER AMOUNT TO A BUSINESS ACTIVITY. IN THE CASE OF EAST INDIA HOUSING AND LAND DEVELOPMENT TRUST LTD. VS. CIT (1961) 42 ITR 49 (SC), A COMPANY WAS INCORPORATED W ITH THE OBJECT OF BUYING AND DEVELOPING LANDED PROPERTIES AND PROM OTING AND DEVELOPING MARKETS. IT PURCHASED LAND IN KOLKATA A ND CONSTRUCTED A MARKET THEREIN. THE QUESTION WAS WHETHER THE INCOM E REALIZED FROM THE TENANTS OF THE SHOPS AND STALLS IN THE MAR KET WAS LIABLE TO BE TAXED AS BUSINESS INCOME OR AS INCOME FROM PR OPERTY. IT WAS HELD BY THE SUPREME COURT THAT THE INCOME FELL TO B E ASSESSED UNDER THE SPECIFIC HEAD INCOME FROM HOUSE PROPERTY AND THE CHARACTER OF THAT INCOME IS NOT ALTERED BECAUSE IT WAS RECEIVED BY A COMPANY FORMED WITH THE OBJECT OF DEVELOPING AND SE TTING UP MARKETS. IN COMING TO THIS CONCLUSION THE SUPREME COURT RELIED ON ITS EARLIER DECISION IN THE CASE OF UNITED COMMERCI AL BANK LTD. VS. CIT (1957) 32 ITR 688 (SC) AND THE ENGLISH CASE OF FRY VS. SALISBURY HOUSE ESTATES CO. LTD. (1930) AC 432. IN THIS ENGLISH CASE DECIDED BY THE HOUSE OF LORDS, THE COMPANY PRO VIDED STAFF TO OPERATE THE LIFTS IN THE BUILDING ACQUIRED BY IT AN D ALSO ACTED AS PORTERS AND WATCH AND PROTECT THE BUILDING. IT ALS O PROVIDED CERTAIN SERVICES SUCH AS HEATING AND CLEANING TO THE TENANT S ON PAYMENT OF ADDITIONAL CHARGES. ON THESE FACTS THE HOUSE OF LO RDS HELD THAT THE INCOME RECEIVED BY THE COMPANY SHOULD BE ASSESSED A S PROPERTY INCOME AND NOT AS BUSINESS INCOME. THIS PRINCIP LE WAS APPLIED BY THE SUPREME COURT IN THE CASE OF EAST INDIA HOUS ING AND LAND ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 7 DEVELOPMENT TRUST LTD. (SUPRA). WE ARE OF THE VIEW THAT THE PRINCIPLE OF THESE DECISIONS IS APPLICABLE TO THE P RESENT CASE IN RESPECT OF THE OWNED PROPERTIES. A PERUSAL OF THE BUSINESS SERVICE AGREEMENT, THE IMPORTANT CLAUSES OF WHICH WE HAVE A LREADY REFERRED TO, SHOWS THAT THIS IS NOT A CASE OF A BUS INESS CENTRE BEING LET OUT TO VARIOUS CONCERNS DURING THE YEAR, IN WHI CH CASE IT COULD POSSIBLY BE ARGUED THAT THE ASSESSEE WAS PREDOMINAN TLY CARRYING ON A BUSINESS AND THE INTENTION WAS TO EXPLOIT A CO MMERCIAL ASSET. THAT WAS THE POSITION BEFORE THE MUMBAI BENCH OF TH E ITAT IN THE CASE OF ROYAL BUSINESS CENTRE P. LTD. VS. ITO (ITA NO: 3901/MUM/ 2004) DATED 6 TH OCTOBER 2005 AND M/S OMSAGAR ENGINEERING P. LTD. VS. ACIT (ITA NO: 2989/MUM/2003 AND CONNECTED APPEA LS) DATED 30 TH NOVEMBER 2006. IN THE CASE OF ROYAL BUSINESS CENT RE P. LTD. THE ASSESSEE HAD PURCHASED A PROPERTY AND PUT UP A BUSINESS CENTRE RENDERING VARIOUS SERVICES TO THE BUSINESS C OMMUNITY, SUCH AS PROVIDING TEMPORARY ADDRESSES IN A PRIME LOCATIO N WITH OFFICE SPACE, SECRETARIAL HELP AND COMMUNICATION FACILITIE S, ETC. THESE FACILITIES WERE USED BY BUSINESSMEN VISITING MUMBAI , WHO COULD NOT AFFORD A FULL-FLEDGED OFFICE SYSTEM. THE LIST OF S ERVICES PROVIDED BY THE ASSESSEE IN THE CASE OF M/S OMSAGAR ENGINEERING P. LTD. IS QUITE EXHAUSTIVE. THE ASSESSEE THERE PROVIDED THE FACILITY OF THREE CONFERENCE / TRAINING ROOMS WHICH WERE FULLY EQUIPP ED WITH PROJECTOR, SCREENS, FURNITURE, TELEPHONE AND SUPPOR TING STAFF SUCH AS SECRETARY, PEONS, ETC. THERE WAS FACILITY OF CENTR AL AIR-CONDITIONING, CARPETED OFFICE, PIPE MUSIC, FILING CABINETS, ZEROX MACHINES, SMALL ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 8 KITCHENETTE WITH GAS SUPPLY, RECREATION ROOM, LIBRA RY ROOM, LUNCH ROOM, ETC. THE ASSESSEE HAD ALSO PROVIDED THE FACI LITY OF CATERING ARRANGEMENT WITH UNIFORM BEARERS AND LUNCH OR DINNE R WOULD BE PROVIDED ON PAYMENT OF ADDITIONAL CHARGES. A GROUP OF TWENTY PERSONS WERE EMPLOYED AND THEY WERE IN CHARGE OF A MANAGER WHO WAS A RETIRED COLONEL IN THE INDIAN ARMY. THERE WE RE NUMBER OF SECRETARIES, PEONS, ELECTRICIANS AND OTHER SUPPORT STAFF TO ENSURE THAT ALL THE FACILITIES WERE PROVIDED TO THE PERSON S WHO TOOK THE BUSINESS CENTRE ON HIRE. THE ASSESSEE THERE ALSO P ROVIDED INTERNET AND EMAIL FACILITY CONNECTION ROUND THE CLOCK. CON SIDERING THESE SERVICES, THE TRIBUNAL HELD THAT THE PREDOMINANT AC TIVITY WAS THE BUSINESS ACTIVITY OF RUNNING BUSINESS CENTRES AND, THEREFORE, IT WAS HELD THAT THE SERVICE CHARGES SHOULD BE ASSESSED AS BUSINESS INCOME. IN THE CASE BEFORE US THE ASSESSEE DOES N OT PROVIDE ANY SUCH SERVICES AS WE CAN SEE FROM THE FACTS AND THE MATERIAL PLACED BEFORE US. FROM THE PROFIT AND LOSS ACCOUNT FOR TH E YEAR ENDED 31.03.2003, IT IS SEEN THAT THE TOTAL SALARIES PAID BY THE ASSESSEE WERE ONLY ` 1,04,880/-. THERE WERE THUS NO SERVICES PROVIDED B Y THE ASSESSEE WHICH ARE NORMALLY PROVIDED IN A BUSIN ESS CENTRE, THE MOST IMPORTANT SERVICES BEING SECRETARIAL SERVICES, CONFERENCE ROOM SERVICES, COMPUTER AND INTERNET FACILITIES, FA CILITIES FOR CATERING, ETC. A BUSINESS CENTRE INDICATES THAT THE PERSON W HO TAKES IT ON HIRE FEELS AS IF HE IS IN HIS OWN OFFICE. THE BUSI NESS SERVICE AGREEMENT IN THE PRESENT CASE, TO WHICH WE HAVE ALR EADY REFERRED, DOES NOT SHOW THAT ANY OF THE ABOVE SERVICES WAS RE NDERED BY THE ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 9 ASSESSEE TO SEAWORLD. MERELY BECAUSE FURNITURE AND FITTINGS AND THE AIR-CONDITIONERS WERE INSTALLED, THAT TOO AS PE R THE REQUIREMENT OF SEAWORLD, THE LETTING OUT OF THE OFFICE SPACE DO ES NOT BECOME A BUSINESS CENTRE. WE ARE UNABLE TO SAY THAT THE ASS ESSEE WAS EXPLOITING A COMMERCIAL ASSET. IT SIMPLY IS A CASE OF LETTING OUT OF THE PROPERTY WITH FURNITURE AND FIXTURES FOR A CONS OLIDATED RENT. THIS ASPECT HAS BEEN HIGHLIGHTED BY THE ASSESSING OFFICE R, WITH WHOM WE AGREE. 8. IN THE CASE OF SHAMBHU INVESTMENT P. LTD. VS. CI T (2003) 263 ITR 143 (SC), THE ASSESSEE PARTLY OCCUPIED AN I MMOVABLE PROPERTY OWNED BY IT AND LET OUT THE REST TO BE USE D AS TABLE SPACE TO OCCUPANTS, WITH FURNITURE & FIXTURES, LIGHTS AND AIR-CONDITIONERS. IT ALSO PROVIDED SERVICES LIKE WATCH AND WARD, ELECTRI CITY, WATER AND OTHER COMMON AMENITIES. THE CALCUTTA HIGH COURT HE LD THAT THE INCOME RECEIVED BY THE ASSESSEE WAS ASSESSABLE AS INCOME FROM HOUSE PROPERTY UNDER SECTION 22 OF THE INCOME TAX ACT, 1961. THE VIEW TAKEN BY THE CALCUTTA HIGH COURT WAS AFFIRMED BY THE SUPREME COURT. THE CONCLUSION OF THE CALCUTTA HIGH COURT O N THE ABOVE FACTS [(2001) 249 ITR 47 AT PAGE 53 (CAL)] IS THAT THE PRIME OBJECT OF THE ASSESSEE UNDER THE AGREEMENT WAS TO LET OUT THE PORTION OF THE SAID PROPERTY TO VARIOUS OCCUPANTS BY GIVING THEM T HE ADDITIONAL RIGHT OF USING THE FURNITURE AND FIXTURES AND OTHER COMMON FACILITIES FOR WHICH RENT WAS PAID MONTH BY MONTH, IN ADDITION TO THE SECURITY FREE ADVANCE COVERING THE ENTIRE COST OF THE IMMOVA BLE PROPERTY. IN THE PRESENT CASE ALSO THE SAME CONCLUSION FOLLOWS. IT IS ALSO ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 10 PERTINENT TO NOTE THAT THE FIXED ASSETS SHOWN IN TH E BALANCE SHEET AS ON 31.03.2003 AMOUNTED TO ` 10,84,93,596/- AS AGAINST WHICH THE ASSESSEE TOOK DEPOSITS AND ADVANCES AMOUNTING T O ` 11,52,95,900/-. 9. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR AT TENTION TO THE FACT THAT FROM THE ASSESSMENT YEAR 1992-93 THE ASSESSEE WAS TAKING PROPERTIES ON RENT AND LETTING THEM OUT AS B USINESS CENTRE AND THE INCOME FROM SUCH ACTIVITY WAS ASSESSED AS BUSINESS INCOME. BUT THE LEGAL POSITION AS ADUMBRATED BY T HE SUPREME COURT IN THE JUDGMENTS CITED SUPRA IS APPLICABLE TO THE OWNED PROPERTIES OF THE ASSESSEE. IN THE CASE OF PROPERT IES WHICH ARE TAKEN ON RENT BY THE ASSESSEE, THE INCOME CAN NEVER BE ASSESSED AS PROPERTY INCOME AND THE DISPUTE CAN ONLY BE WH ETHER SUCH INCOME IS ASSESSABLE AS BUSINESS INCOME OR AS IN COME FROM OTHER SOURCES. THEREFORE, THE FACT THAT FROM THE ASSESSMENT YEAR 1992-93 THE ACTIVITY OF TAKING PROPERTIES ON RENT A ND LETTING THEM OUT WAS ASSESSED AS BUSINESS INCOME CANNOT AFFECT THE DECISION IN THE CASE OF INCOME DERIVED FROM THE ASSESSEES OWNE D PROPERTIES. SIMILARLY, ON THE CASE OF NUTAN WAREHOUSING COMPANY P. LTD. VS. DCIT (2010) 326 ITR 94 (BOM), WHICH IS THAT OF THE HONBLE BOMBAY HIGH COURT, THE ASSET WHICH WAS LET OUT WAS A WAREHOUSE WHICH WAS A PURE COMMERCIAL ASSET AND EXPLOITATION OF COMMERCIAL ASSET WAS HELD TO BE A BUSINESS ACTIVITY AND THE IN COME WAS HELD TO BE FROM BUSINESS. THE FACTS OF THE PRESENT CASE AR E NOT SIMILAR. ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 11 10. THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE DREW OUR ATTENTION TO THE ORDER OF THE MUMBAI BENCH OF THE T RIBUNAL IN THE CASE OF MARWAR TEXTILES (AGENCY) (P) LTD. VS. ITO ( 2009) 116 ITD 335 (MUM). A PERUSAL OF THE ORDER SHOWS THAT THE F ACTS WERE SUBSTANTIALLY SIMILAR TO THE FACTS OF THE CASE BEFO RE US. IT WAS HELD THAT IN THAT CASE THAT IT WAS A CASE OF LETTING OUT OF FURNISHED ACCOMMODATION ON LONG TERM BASIS, WHEREAS IN THE CA SE OF BUSINESS CENTRE THE PURPOSE IS TO PROVIDE SPACE TO BUSINESS PEOPLE ON SHORT TERM BASIS FOR HOLDING CONFERENCES, EXHIBI TIONS, ETC. IT WAS THEREFORE HELD THAT THE RULING OF THE SUPREME COURT IN THE CASE OF SHAMBHU INVESTMENT P. LTD. VS. CIT (SUPRA) WOULD AP PLY AND THAT THE INCOME WAS ASSESSABLE AS PROPERTY INCOME AND NOT AS BUSINESS INCOME. THIS RULING, WITH WHICH WE RESP ECTFULLY AGREE, APPLIES TO THE FACTS OF THE PRESENT CASE. 11. WE NOW TAKE UP THE ALTERNATIVE PLEA OF THE ASSE SSEE THAT THE SERVICE CHARGES SHOULD BE BROKEN UP INTO PROPERTY INCOME AND INCOME FROM OTHER SOURCES ON THE BASIS THAT THE R ENT FOR THE PROPERTY SHOULD BE ASSESSED AS PROPERTY INCOME AN D THE SERVICE CHARGES COLLECTED FOR THE SERVICES SHOULD BE ASSESS ED AS INCOME FROM OTHER SOURCES. THERE IS NO BASIS FOR ACCEPTI NG THE ALTERNATIVE PLEA. THE BUSINESS SERVICE AGREEMENT PROVIDES FOR A CONSOLIDATED MONTHLY RENT FOR THE PROPERTY WHICH INCLUDES THE FU RNITURE & FIXTURES, AIR-CONDITIONERS, ETC. WE CANNOT REWRITE THE CONTR ACT AND SPLIT THE CONSOLIDATED MONTHLY PAYMENT INTO THAT RELATABLE TO PROPERTY AND THAT RELATABLE TO THE SERVICES. MOREOVER, WE HAVE ALREADY FOUND ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 12 THAT NO SERVICES AS SUCH WERE PROVIDED BY THE ASSES SEE TO SEAWORLD OVER AND ABOVE LETTING OUT OF THE FURNISHE D PROPERTY. THEREFORE, THE ALTERNATIVE PLEA FAILS. 12. FOR THE ABOVE REASONS WE HOLD THAT THE ASSESSIN G OFFICER WAS RIGHT IN HOLDING THAT THE INCOME FROM OWNED PRO PERTIES SHOULD BE ASSESSED AS PROPERTY INCOME AND NOT AS BUSINE SS INCOME. WE RESTORE HIS DECISION AND ALLOW GROUND NO.1 FOR A LL THE THREE YEARS. 13. WE MAY NOW TAKE UP GROUND NO.3 BECAUSE IT IS CO NNECTED TO THE COMPUTATION OF PROPERTY INCOME. IN RESPECT OF THE OWNED PROPERTIES, WE HAVE ALREADY NOTICED THAT THE ASSESS ING OFFICER INCLUDED 10% OF THE SECURITY DEPOSIT AND ADVANCE RE NT IN THE INCOME AND HIS ACTION WAS DISAPPROVED BY THE CIT(A) . THE REVENUE IS IN APPEAL TO CONTEND ON THE BASIS OF THE ORDERS OF THE MUMBAI BENCHES OF THE TRIBUNAL IN THE CASE OF TIVOL I INVESTMENT & TRADING CO. (P) LTD. VS. ACIT (2004) 84 TTJ 198 (MU M) AND ITO VS. BAKER TECHNICAL SERVICES (P) LTD. (2009) 126 TTJ 45 5 (MUM) (TM) AND THE ORDER OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF FIZZ DRINKS LTD. VS. DCIT (2005) 95 TTJ 429 (DEL), THAT THE NOTIONAL INCOME WAS RIGHTLY ADDED SINCE THE INCOME FROM THE PROPERTY IS COMPUTED UNDER SECTION 23(1)(A) OF THE ACT. THIS I SSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE RECENT ORD ER DATED 26.11.2010 PASSED BY THE MUMBAI BENCH D IN THE CA SE OF DCIT VS. RECLAMATION REALTY INDIA PVT. LTD. (ITA NO: 141 1/MUM/2007 AND CONNECTED APPEALS) (ASSESSMENT YEAR: 2004-05), A CO PY OF WHICH ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 13 WAS FILED BEFORE US ON BEHALF OF THE ASSESSEE. IN THIS ORDER, AFTER CONSIDERING THE ENTIRE LEGAL POSITION AND WITH PART ICULAR REFERENCE TO SECTION 23(1)(A) AND ALSO AFTER CONSIDERING THE THR EE ORDERS CITED BEFORE US ON BEHALF OF THE DEPARTMENT, THE TRIBUNAL CAME TO THE CONCLUSION THAT EVEN FOR THE PURPOSE OF SECTION 23( 1)(A) THE NOTIONAL INTEREST INCOME ON THE SECURITY DEPOSIT / ADVANCE R ENT CANNOT BE INCLUDED IN THE INCOME FROM PROPERTY. RESPECTFULLY FOLLOWING THE SAID ORDER, WE AFFIRM THE DECISION OF THE CIT(A) FO R ALL THE THREE YEARS. THUS GROUND NO.3 FOR THE ASSESSMENT YEAR 20 03-04 AND GROUND NO.2 FOR THE ASSESSMENT YEARS 2004-05 AND 20 05-06 ARE DISMISSED. 14. IN THE APPEAL FOR THE ASSESSMENT YEAR 2003-04, THERE IS ONE MORE GROUND, WHICH IS GROUND NO.2 AND THE SAME IS T O THE EFFECT THAT THE CIT(A) ERRED IN DIRECTING THE ASSESSING OF FICER TO TREAT THE INCOME FROM PROPERTIES TAKEN ON RENT AND LET OUT AS INCOME FROM BUSINESS, AS CLAIMED BY THE ASSESSEE, IN PREFEREN CE TO THE STAND OF THE ASSESSING OFFICER THAT THE SAME SHOULD BE AS SESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. WE HAVE ALRE ADY SEEN THAT IN RESPECT OF THE FOUR PROPERTIES (THREE IN MUMBAI AND ONE IN KOLKATA) TAKEN BY THE ASSESSEE ON RENT AND LET OUT, THE ASSESSING OFFICER COMPUTED THE INCOME AT ` 5,48,746/- AND TREATED THE SAME AS INCOME FROM OTHER SOURCES. THE CIT(A) ACCEPTE D THE ASSESSEES PLEA THAT THIS INCOME SHOULD BE ASSESSED AS BUSINESS INCOME. THE REVENUE IS IN APPEAL AND WE HAVE CONS IDERED THE FACTS AND THE RIVAL CONTENTIONS. SUCH INCOME HAS B EEN TREATED AS ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 14 BUSINESS INCOME EVEN BY THE ASSESSING OFFICER RIG HT FROM THE ASSESSMENT YEAR 1992-93. THERE IS NO CHANGE IN THE FACTS OR IN THE LEGAL POSITION. THE QUESTION WHETHER THE INCOME CA N BE ASSESSED AS PROPERTY INCOME CANNOT ARISE BECAUSE THE ASSES SEE IS NOT THE OWNER OF THESE PROPERTIES. FOR SEVERAL YEARS THE A SSESSEE HAS BEEN TAKING PROPERTIES ON RENT AND LETTING THEM OUT FOR RENT. THERE IS A CONTINUOUS, ORGANIZED AND SYSTEMATIC COURSE OF ACTIVITY WHICH AMOUNTS TO BUSINESS. IN SUCH A CASE, AS HELD BY TH E SUPREME COURT IN S G MERCANTILE CORPORATION P. LTD. VS. CIT (1972) 83 ITR 700 (SC) AND KARANPURA DEVELOPMENT CO. LTD. VS. CIT (1962) 44 ITR 362 (SC), IT IS POSSIBLE TO VIEW THE ACTIVITY A S BUSINESS ACTIVITY. WE, THEREFORE, DO NOT SEE ANY MERIT IN THE STAND TA KEN BY THE DEPARTMENT THAT IN SUCH A CASE THE INCOME SHOULD BE ASSESSED AS INCOME FROM OTHER SOURCES. THE RESIDUARY HEAD OF INCOME CAN BE INVOKED ONLY IF THE ACTIVITY DOES NOT AMOUNT TO A B USINESS. WE, THEREFORE, AGREE WITH THE CIT(A) AND DISMISS GROUND NO.2 FOR THE ASSESSMENT YEAR 2003-04. THERE IS NO SUCH GROUND I N THE ASSESSMENT YEARS 2004-05 AND 2005-06. 15. IN THE RESULT, ALL THE THREE APPEALS OF THE DEP ARTMENT ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH JANUARY 2011. SD/- SD/- (P M JAGTAP) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI, DATED 12 TH JANUARY 2011 SALDANHA ITA NO: 7046/MUM/2006 ITA NO: 4382/MUM/2007 ITA NO: 4747/MUM/2008 15 COPY TO: 1. VAISHNAV S PURI (HUF) PROP. OF M/S KAKS INTERNATIONAL NCL BUILDING, 8 TH FLOOR, BANDRA KURLA COMPLEX BANDRA (EAST), MUMBAI 400 050 2. DCIT / ACIT 19(3), MUMBAI 3. CIT-19 4. CIT(A)-XIX 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI